Despite a fresh warning from the Internal Revenue Service, a key committee in the California Legislature on Friday unanimously advanced legislation designed to shield wealthy residents from the effects of the federal tax overhaul enacted by Congress in December.

The tax overhaul ended the previously unlimited itemized deduction for all local and state taxes and capped the deduction at $10,000. A Tax Policy Center study estimates the change will cost about 489,000 state tax filers an average of $3,290.

Three high-tax states – New York, New Jersey and Connecticut – have already passed elaborate legislation that allows tax filers to defray their bills by giving money to state-designated charities. Such donations remain deductible, in theory, on federal tax forms.

But last Wednesday, the IRS took dead aim at the three states’ tax-avoidance measures. In what the Bond Buyer website called “an unusually blunt notice,” the IRS warned taxpayers to be “mindful” that “federal law controls the characterization of the payments for federal income tax purposes regardless of the characterization of the payments under state law.”

The IRS warning makes it close to inevitable that the interpretation of what is an eligible charitable deduction under the federal tax code will come before the federal courts. New York Gov. Andrew Cuomo is likely to lead the charge, describing the warning as an unlawful “attack” by the Trump administration on the Empire State.

California lawmakers may end up part of that legal fight. On Friday, a measure setting up a charity-donation system like New York’s – Assembly Bill 2217, by Inglewood Democrat Autumn Burke – won the support of the Assembly Appropriations Committee on a bipartisan 14-0 vote; three Republicans abstained. On May 14, it passed the Assembly Revenue and Taxation Committee on a 7-0 vote in which there were also three GOP abstentions.

On Jan. 30, Senate Bill 227 – a similar measure proposed Senate President Pro Tem Kevin de León, D-Los Angeles – passed the Senate on a 27-6 vote, with seven GOP abstentions. It has yet to receive an Assembly hearing.

Like Burke’s measure, de León’s bill would give tax filers who made a donation to a specified institution a state income tax credit that was nearly equal to their contribution.

Brown’s view of tax-avoidance proposals unclear

How Gov. Jerry Brown views the bills is unclear. In December, while Congress was finalizing the tax overhaul, he blasted the plan as “evil in the extreme” and joined Cuomo in calling the cap on state and local tax deductions a partisan assault by Republicans on Democratic states.

In January, he repeated his criticism of the tax changes as partisan when he unveiled his proposed 2018-19 budget, saying at a news conference that he worried that because of the lost deductions, wealthy Californians “may be tempted to leave.”

But so far, Brown has not commented specifically on the measures before the Legislature. He’s also kept clear of proposals to address the federal tax changes with a huge overhaul of California’s tax system that would reduce income and sales taxes while adding new taxes on services. This would both limit the pain caused by the cap on the federal deduction and lessen the heavy volatility of the state’s revenue stream.

Such tax changes were endorsed in 2009 by Gov. Arnold Schwarzenegger and a bipartisan commission he established. But their 425-page tax reform plan was dead on arrival in the Legislature. Democrats blasted it for being a giveaway to the wealthy. Republicans ripped the proposal for sharply expanding categories of taxation.

First off California’s State Legislators are money sucking vampires taxing everything that swims, crawls, walks, pours and stands to a painful fault. Now, to preserve their preferred victims veins, they propose to protect those big meal tickets with some tax code chicanery or in other words—-abject discrimination.

Anybody surprised the D-Rats are making a play to save the rich? No surprise here because they and the corporations are the Dems biggest donors.
Anyone seen the ‘Rats in Excremento doing anything for the regular folks except load up more taxes, drive up housing,energy, and the cost of getting back and forth to work.
Party of the ‘little’ people. Hilarious!

You mean the Democrat controlled Legislature is shielding rich people? Shielding the 1%ers? The evil capitalists and corporate moguls that the Democrats are always threatening to tax in order to pay for all their pet programs. ROTFLMAO. Wake up folks.

So true. Make sure you and everyone you know votes Republican for Governor and especially Republican on down ballot elections this time. Legislature needs to pick up at least 8 conservative seats in Assembly and at least 3 in Senate

So let me see if I understand this. Jerry and the leftist dem bulbs in the Sacramento Duma pass a law to allow the rich to donate to charities specified by the state to lower their taxes. Then the IRS declares donations to those charities illegal for federal tax purposes. So now the rich cats who made those donations are still on the hook for the taxes, plus penalties and interest for late payment. Way to go Dem-wits!!!

Before 1913 there was no income tax, Federal Reserve & IRS. See a pattern here. So no Fed & IRS so no income tax needed. We have all been conned in the redistribution of wealth. President Reagan & the Grace Commission found that 99% of the Federal Income tax was to pay interest on the national debt. But wait a damned minute if we print our own money why is there interest on it. Lincoln printed Greenbacks backed by the US Govt with no interest to the thieving bankers. STOP THE FED & Income tax.

Chris Reed

Chris Reed is a regular contributor to Cal Watchdog. Reed is an editorial writer for U-T San Diego. Before joining the U-T in July 2005, he was the opinion-page columns editor and wrote the featured weekly Unspin column for The Orange County Register. Reed was on the national board of the Association of Opinion Page Editors from 2003-2005. From 2000 to 2005, Reed made more than 100 appearances as a featured news analyst on Los Angeles-area National Public Radio affiliate KPCC-FM. From 1990 to 1998, Reed was an editor, metro columnist and film critic at the Inland Valley Daily Bulletin in Ontario. Reed has a political science degree from the University of Hawaii (Hilo campus), where he edited the student newspaper, the Vulcan News, his senior year.
He is on Twitter: @chrisreed99.